Why iRadio Will Be iOS 7’s Killer App: The Ads

Following word that Apple’s iAd team is being restructured to allow for tighter integration with iOS 7’s new streaming music feature, iRadio, a new report talks just about how the ads on iRadio are going to work, how Apple’s going to make money on iRadio, and how much Apple’s paying the labels to make it happen.

Speaking to sources, AdAge says that Apple is going to make substantial money on iRadio. Not only will ads pay Cupertino better than they do in iAd — a radio ad tends to pay a lot more than a banner ad — but Apple will take a much higher cut of the proceeds. For apps that display iAds, Apple only keeps 30%, paying 70% of the ad money to developers. For iRadio, Apple will keep 90% of the revenue, giving only 10% to the music labels.

Even so, a 10% cut of iRadio is enough to be enticing to most music publishers, who only get about 4% from the likes of Pandora. And ads on iRadio will likely be a better deal for advertisers than Pandora too, since Apple will be able to precisely geolocate a user’s location to target them for ads. Imagine walking down the street and having iRadio play an ad to you for the pizza shop you’re walking by. iRadio will also be able to target ads based upon your media taste, as dictated by the apps, music, games, and movies you’ve downloaded through iTunes.

And, of course, there’s the added benefit to Apple that iRadio will help with iTunes discoverability. With iRadio, Apple can stream music to you based upon your musical tastes, and if you like a track, buying it off of iTunes will be just a tap away. That’s a killer feature.

iRadio is widely expected to be announced next week at WWDC. I can’t wait.